Jason Zweig wrote a great column The Wall Street Journal in which he talks about smart versus dumb money.
Many professional investors consider themselves “smart” money and individual investors “dumb” money. There is recent research and some anecdotal evidence that cast doubts on that.
The research is pretty interesting. Part of it is that institutional investors, the so-called “smart” money, often have a jumble of beliefs. They also tend to invest based on narratives. They pick up some facts and then try to make some sort of compelling story about how or what to invest in. Sometimes that works and sometimes it doesn’t. It’s not necessarily smart. Sometimes it sounds smart but whether it’s effective is another matter.
As for the so-called “dumb” money, when given choices people tend to make a lot of good decisions. Not perfect decisions, none of us are perfect, but they make better decisions than institutional money managers might tend to think.
So when somebody says that they are the smart money, or they try to spin some narrative about investing, take either with a grain of salt.
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